What would you do, first time investor from NY?

Question

Hi, guys, I'm from NYC (Brooklyn). I know the NYC market is very expensive for newbies like myself and I feel like I may have to look outside of the city to get started.

I currently make $42k year and have 32k  in savings for my first property.

My dream is to get a duplex in NY to house hack/ rent out, but I understand this may not be possible due to my income, I have someone that can co-sign for me but their income is only 30k a year that wouldn’t be enough for NY prices, a house owner told me you need at least a 100k income to invest in Brooklyn. Most Duplexes are 800k in Brooklyn. Anyways, I’m not complaining! I’m eager to start investing. I’m tired of saving with so little returns! I wanna invest now that interest rates are low…

I’ve considered buying in Paterson, New Jersey, but I hear taxes there are more expensive than NY, so this leads to my other choice Hazleton, PA. This is a small town in Pennsylvania, 3 hours away from NYC and 2 hours away from Philadelphia, approx. 25,000 residents, the has population has decreased at -0.289% annually. Would you guys buy a cash flow positive property in a market where you haven’t seen big capital gains in the last 30 years?

* My sister lives there and is house hacking a duplex, she’s makes over $500 in profit every month.

Home prices in Hazleton (duplex)
Are around 250k
A Co-op in NY for a two-bedroom apartment is around 280k


Any ideas or feedback would be appreciated. I like that the duplex will give me cashflow. I always look at the larger area that feeds “smaller” towns, too. If I’m able to cashflow & keep the units rented than I think that works. But I’m also afraid because New York is New York.. the appreciation for some homes here is crazy I have a friend that bought a house for 500k in 2012 and he sold it last year for 700k you don’t see that kind of capital gains in Pennsylvania.

I would greatly appreciate you guys opinion, I apologize for the long text I wanted to give as much context as possible.

Thanks in advance,

David Lee Hall, III · Answer

I am not on that side of the state, but a few random things. On your salary which you may be able to get a $250k property, I think you would be stretching yourself too thin.

1) Don't invest for appreciation. It is a bonus. If your deal requires appreciation for you to be happy or to get out of it in the long run, it isn't a deal. No one has a crystal ball to know where things will be in any given neighborhood in 10-20-30 years. (Yes, I know, there are relatively safer bets than others, just saying you never know when something like Flint's contaminated water supply could spring up and ruin an area overnight.)

2) Look at wholesalers. You are generally going to get a better price than on-market, but many are not very good. Be sure you can run comps and repair estimates to check their work, don't trust what they present. Example: I recently sold a property in Arnold, PA a town 25m NE of Pittsburgh. It is a typical dying rustbelt down with downward populate trends of 5-10% every decade. Of course there is associated risk with bad parts of town as you may expect. I found a working class neighborhood and managed to get a place with ARV of $85k to my buyer all in at $44k. That is $10k of repairs (contractor written quote not my BS estimate) and $34k at closing including my fees. The place is a 3 bed 2 bath with a 1st floor master and 1st floor laundry, a 7 y/o kitchen and a roof under 5 years old. It will rent for about $900 a month conservatively. He is going to be able to do a 70% cash out refi in a month, get $5,000 back and cash flow $400 a month over PITI. This could have been bought with hard money with as little as $5-10k out of pocket, easily within your budget of $32k - you just probably wouldn't get the pop at the end due to points and the cost of money.

3) Select your location, but line your team up first. You want to know what you are looking for and make sure whomever is your feet on the ground understands your model. Look at what hard money folks (if you go that route) will lend on in an area. See how far you can stretch your money with leverage. Make sure you keep some in reserve though. I would say plan to use up to $20k, and keep $12k for oopsies. If you only can get an 80% acquisition + 100% rehab loan, you know you will probably looking at a $85-90k property purchase. You likely don't want a massive rehab, so lets limit this to cosmetic, say a $20k budget. Most HML will lend at 70% ARV - repairs. So $90k+$20k needs to equal 70% of the value. This happens to be $157k. Find an area where this is the median home price. (Pittsburgh happens to be $155k, go figure.) Now target homes that have an after repair value of $130k-$160k and try to get them at that $85-90 number bought. This is the BRRRR strategy in a nutshell.  This may dictate looking more towards Harrisburg, Corning or Albany. I may also recommend going down a little more for even more safety and look at an area with an ARV around $125k.

Calvin Thomas · Answer

NYC sucks due to eviction laws.  With your salary, you'd be financially in a bind going through one eviction in NYC.  The big boys are sitting on the sidelines in NYC right now until we know what's the status of this new BS rent law which is driving property costs down; especially in NYC.

Stay out of places outside of a metro area. Good areas to look into are Bridgeport, CT, Stratford, CT, Irvington, NJ (LTH - will be the next area to be revitalized such what Newark, NJ is going through. Hartford, CT, New Haven, CT, Philadelphia, PA, etc.

Are you going to self-manage or will you be hiring a property manager? Stay away from dying towns; especially in rust belt towns. Pittsburgh is fine, but many have missed the boat on that one. It was able to turn itself around. Hazleton is a dying town. If you are not local, it's not worth the headache.

Abel Curiel · Answer

Hello Angel,

New York City multi-family investing is possible but you'd likely need that co-signer to help you get qualified. That being said, the best way to find out where you stand financially is to meet with a lender and have them run a scenario using your credentials.

I've helped people in NYC house-hack with less than $40K initial investment. Some have purchased turn-key properties that allowed them to significantly lower their living expenses. These properties will cash flow when they move out and rent the unit they currently occupy.

Of course, everyone's situation is different which is why speaking with a lender is your best bet for a 'next step'. The lender can also look into a PA investment property scenario. This way, you can compare both situations.

As mentioned in the other comment, you will need to run sales and rental comparables to get the best deal analysis. For comparable market analyses, I recommend connecting with a local Realtor in your target markets.

Best of luck to you moving forward!

Abel

Calvin Thomas · Answer

I started back in the late 70's in NYC without a pot to piss from, so I get where you are coming from.  If you really want to get the best bang for your buck, you should look for opportunity zones.  They are in any major metro area, but usually in not the greatest or up and coming areas.  They provide grant funds and tax incentives in order for you to invest and rehab these properties.  You want to find the ugliest house in the nicest or up-in-coming area and rehab.  Start slow, get many quotes and do your research. Many will try to take advantage of a new person in the game. With the resources on BP and the Internet, you should be able to navigate through the BS.  Since this is your first investment, you want to be close to home in major areas.  You may want to consider looking into condos which allow your to sublet in Westchester or Rockland Counties. Check out Home Path, Xome, and auction.com for some parcels to review. Start slow and grow. Many people get the real estate itch from the late night TV infomercials or Grant Cardone. Grow big and grow fast. That's not usually how it's done. Grow slow and steady. Learn on cheap buildings and over time upgrade to better ones.  Stay away from hick and dying towns. Metro and urban areas is where the jobs are.  That is where you want to be.  Consider Princeton and Trenton too.  There are options, but people just need to look where others aren't.

Feel free to message directly if you have any questions.

Oscar Beteta · Answer

@Angel R.

Also if you add property management (~10%) that might lower your cash flow even further.

Angel R. · Answer

@Oscar Beteta

I’m calculating $450 a door after taxes however I excluded her vacancy cost and maintenance so she’s probably pushing 250 a door

Oscar Beteta · Answer

@Angel R.

Hi Angel,

Can you be more specific about how you are running the numbers that lead your sister to be making $900 per month on the duplex?

I assume this is taking the gross rent and then subtracting PITI as well as “other expenses.” I’m curious what you are assuming as “other expenses”.

I’m also new to all of this but I’m learning quite fast. I find that their is a huge ambiguity when people talk about “cash flow” as different people calculate these “other expenses” differently and also everyone finances a different percentage of the acquisition costs.

Angel R. · Answer

Thank you, Joe, that's a great idea. We ran the numbers she's making 475 a door so 950 a month for her Duplex, she will buy another one solo.

Joe Jor · Answer

@Angel R.  While I don't know squat about Hazleton, and I would listen to Calvin's perspective, but maybe your sisters would Property Manage for you?  Throw them some money, everyone one is a winner.

With that said, treat it like a business.  Write everything down in a contract, make sure neither side has any unstated assumptions.  Working with family can be hazardous to relations, especially  if you are not 100% aligned or folks gravitate to the emotional side.

I would also ask to see detailed numbers on your sister's property. You want to make sure she isn't embellishing the situation.  "Trust, but verify" -Reagan (although Brandon Turner might have appropriated it!)

Lastly, maybe your sisters are looking for a new property; you could partner with them.  You be the money (or part of), they would be the day-to-day.

Just some other ideas to consider.  Best of luck in your hunt.

Joe

Scott Wolf · Answer

While I haven't done complete market research, a simple Redfin search shows me affordable house hacking options in West Palm, Jacksonville & Orlando.

What would you do, first time investor from NY?

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